Virgin Money withdraws 5% deposit from mortgages as first-time buyers face the risk of falling home prices

Virgin Money has withdrawn its 5 per cent deposited mortgages from the sale temporarily to allow it to review “market conditions”.

It comes amid fears that home prices could drop in the coming months and years, leaving those with large mortgages exposed to negative equity risk.

Mortgage experts said other lenders are likely to follow suit, with some predicting that 10 percent deposit loans could fall as well.

Virgin’s 5 per cent deposit products have not been available to new customers since 8pm last night, and mortgage brokers have been advised to send any pending applications to the lender “as soon as possible”.

Existing Virgin Money customers wanting to convert their mortgage into a 5 percent deposit product, also known as 95 percent loan-to-value, the bank can still do so.

Virgin Money told This is Money: ‘We have taken the temporary decision to withdraw our 95 per cent LTV range to new customers while we review our homebuyers offer and monitor market conditions.

“95 percent of the LTV range remains available to existing customers for product transfer.”

Borrowers use our best mortgage rates calculator to check the best rates they can apply for based on deposit and property value.

Mortgage brokers have expressed concern about what the move means for first-time buyers, who are major users of low-deposit mortgages.

If other lenders follow in Virgin Money’s footsteps, it could become more difficult for those moving up the property ladder to find a suitable mortgage.

Small-deposit mortgages are riskier for lenders, as repayments are usually higher and the chance of negative equity is greater if home prices drop.

This means they sometimes pull them from sale in times of financial uncertainty, as they did at the start of the Covid-19 pandemic.

We Drive, mortgage broker Jonathan Burridge, said: “This last comment about market conditions worries me. Are we going to start seeing low-deposit mortgages disappear as we did at the start of Covid?

Mortgages with 10% deposit then?

Others said the move was reasonable in light of the fact that some economists expect a significant drop in house prices.

Analysts’ projections vary, with many predicting declines in the region of 10 to 15 percent next year, but some being more conservative and some as high as 30 percent.

The Office for Budget Responsibility forecast a 9 percent decline in home prices in figures published along with its latest fall statement.

Given that many economists think there could be a fall in house prices of up to 30 percent, I’m just amazed, said Samuel Mather-Holgate, independent financial advisor at Mather and Murray Financial. [10 per cent deposit] Mortgages are still available.

“Five percent is a thin layer of stocks in a bear market from a risk management perspective, so I expect to see an end to this for the next 12 months.”

Others said removing 5 percent deposit deals would be a good thing in the end because it would protect borrowers from risk.

Graham Cox, director of broker Mortgage Hub, added: ‘It’s likely that many other lenders will follow suit and pull 95 per cent LTV deals, as just how low house prices become more apparent by the day.

“But somehow, the lenders make the borrowers only a 5 percent service deposit.

If you lose your job and can’t keep up with your mortgage payments, not only will you lose your home, but if the lender can’t recover the full loan amount when the property is sold at auction, it will continue to pursue you for the difference. not nice.’